1. Strategic Decisions (Part II)

2. Decision Phases of a Supply Chain
Supply chain strategy or design
Automate flow of information between company and supply chain partners
Supply chain planning
Generate demand forecasts for a product (demand planning) and help develop sourcing and manufacturing plans for that product
Supply chain operation
Manage the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner

3. Supply Chain Planning
Definition of a set of policies that govern short-term operations
Fixed by the supply configuration from previous phase
Starts with a forecast of demand in the coming year

4. Supply Chain Planning Planning decisions:
Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions
Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon

5. Capacity Management in a Supply Chain
Managing capacity
Time flexibility from workforce
Use of seasonal workforce
Use of subcontracting
Use of dual facilities – dedicated and flexible
Designing product flexibility into production processes

6. The Capacity Management Problem
Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level for each period that maximizes the firm’s (supply chain’s) profit over the planning horizon
Specify the planning horizon (typically 3-18 months)
Specify the duration of each period
Specify key information required to develop capacity management plan

7. Capacity Management Strategies
Trade-off between capacity, inventory, backlog/lost sales
Chase strategy – using capacity as the lever
Time flexibility from workforce or capacity strategy – using utilization as the lever
Level strategy – using inventory as the lever
Mixed strategy – a combination of one or more of the first three strategies

8. Chase Strategy
Production rate is synchronized with demand by varying machine capacity or hiring and laying off workers as the demand rate varies
However, in practice, it is often difficult to vary capacity and workforce on short notice
Expensive if cost of varying capacity is high
Negative effect on workforce morale
Results in low levels of inventory
Should be used when inventory holding costs are high and costs of changing capacity are low

9. Time Flexibility Strategy
Can be used if there is excess machine capacity
Workforce is kept stable, but the number of hours worked is varied over time to synchronize production and demand
Can use overtime or a flexible work schedule
Requires flexible workforce, but avoids morale problems of the chase strategy
Low levels of inventory, lower utilization
Should be used when inventory holding costs are high and capacity is relatively inexpensive

10. Level Strategy
Maintain stable machine capacity and workforce levels with a constant output rate
Shortages and surpluses result in fluctuations in inventory levels over time
Inventories that are built up in anticipation of future demand or backlogs are carried over from high to low demand periods
Better for worker morale
Large inventories and backlogs may accumulate
Should be used when inventory holding and backlog costs are relatively low

11. Decision Phases of a Supply Chain
Supply chain strategy or design
Automate flow of information between company and supply chain partners
Supply chain planning
Generate demand forecasts for a product (demand planning) and help develop sourcing and manufacturing plans for that product
Supply chain operation
Manage the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner

12. Supply Chain Operation
Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and operating policies are determined
Goal is to implement the operating policies as effectively as possible
Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders
Much less uncertainty (short time horizon)

13. Drivers of Supply Chain Performance
Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation
combinations of transportation modes and routes

14. Drivers of Supply Chain Performance
Information
data and analysis regarding inventory, transportation, facilities throughout the supply chain
potentially the biggest driver of supply chain performance
Sourcing
functions a firm performs and functions that are outsourced
Pricing
Price associated with goods and services provided by a firm to the supply chain

15. Supply Chain Performance Measurement
Metrics for measuring supply chain performance:
Fill rate (the ability to fill orders by the due date)
Average time from order to delivery
The number of days of supply in inventory
Forecast accuracy
The cycle time for sourcing and making a product

16. Case Study :Toyota’s Demand Planning
With more than 1,200 accessory part numbers Toyota was experiencing greater business complexity and increased business volume regarding new models and parts
The spreadsheet-based system Toyota used to manage its supply chain processes was less than optimal. Toyota’s accessory supply administrators had to go into the spreadsheets to manually enter and extract critical vehicle information.

17. Toyota’s Challenges To automate the forecasting process
To allow more time to examine demand drivers
To remove inefficiencies from the supply chain

18. Toyota’s Supply Chain Solution
Replace existing spreadsheet-based system
Enable administrators to investigate issues during ordering process
Analyze part numbers more effectively

19. How did i2 Technology help?
Toyota chose i2 Demand Planner™ as the solution to forecast future demand for its automotive parts and accessories.
Demand Planner provides an environment that combines the best statistical techniques, unlimited causal factors, and the ability to manage multiple inputs with best-in-class, multi-dimensional data representation and analysis in a user-friendly manner.

20. The Outcome increased forecasters’ efficiency
Improved communication among supply chain divisions
Reduced inventory shortages and overages resulting from poor forecasting

21. Discuss the following questions:
What problems do Toyota address? How does i2 Technology supply chain solution help solve these problems?
What issues and challenges do Toyota present? What can be done to address these issues?
What are the business as well as the technology issues that should be addressed when i2 Technology provide Toyota demand planning solution?